Amazon and Walmart are not retailers anymore. They are ad companies.
Walmart and Amazon now make more money selling access to customers than selling to them. A retail CEO who sat on both sides explains the retail media tax.
Walmart's advertising business grew 37% last quarter.
The store business grew about 4%.
Let that gap sit for a second.
Walmart Connect did $6.4B last year, up 46%, and it is growing roughly six times faster than the stores. Amazon's ad business did $17.2B in a single quarter, over $70B in the last twelve months, and it is now Amazon's second most profitable business. Behind only the cloud. Ahead of the store.
The retailer you sell through is not in the retail business anymore. It is a media company wearing a store. And your marketing budget is the raw material.
I have sat on both ends of this invoice. I ran a $2B digital business at a 900-store retailer (collects the ad money) and a $220M DTC brand (pays it).
From the retailer's chair, retail media is the best business ever invented. Industry estimates put margins at 60 to 70%. A grocer fights for a 3% operating margin on the soup. The ads on top of the soup run at 60. In the holiday quarter, ads and membership drove about a third of Walmart's operating income.
From the brand's chair, it is rent. You pay for the shelf, then pay again to be visible on the shelf you already paid for. Stop paying and you disappear.
That is not a channel. That is a tenancy.
Three things this quarter:
- Separate retail media spend from marketing spend. Call it cost of access.
- Calculate what percent of gross margin you pay back to the platform. Often 15 to 30%.
- Build one demand channel the retailer cannot tax.
The brands that built businesses got to keep them. The brands that built channels got to give them back.
Are you building a business? Or funding theirs?
